All posts in category Bonds

The U.S. may have averted the fiscal cliff, but its credit rating with Moody’s Investors Service is still on the ledge.

Moody’s top U.S. analyst said Wednesday that Congress’s budget compromise may not help to stave off a downgrade in 2013.

The budget package passed late Tuesday by the House of Representatives, which raised taxes on some of the wealthiest Americans and prevented most impending tax increases, means the government debt burden remains at a high level, says Steven Hess, Moody’s lead analyst on the U.S.

The fiscal cliff package indicates “the debt to GDP ratio stabilizes and maybe even increases toward the end of the decade to the upper 70s as a percent of GDP,” Mr. Hess said in an interview. “Maybe that isn’t sufficient to support the triple-A rating without further deficit reduction measures.”

It’s a rally – right now, at least, after Congress passed the stripped-down, taxes only version of a fiscal-cliff budget bill.

Now seems like as good a time as any to take a snapshot of the markets, so you can remember this moment when the next D.C. slugfest strikes.

Risk assets are getting a strong boost as trading gets under way in 2013, with stocks being the most visible example. The question, of course, is how long this burst lasts and where it goes from here. Lord knows, there are plenty of issues facing investors. On the other hand, there are plenty of central banks playing beggar-thy-neighbor.

U.S. stocks burst out of the gate, and have since leveled off, so it’s worth taking a look at where the various markets sit right now.

Treasury bonds yields are rising slightly as the budget talks to avoid a fiscal cliff haven’t yet yielded any results even as the deadline approaches, and stocks start off this last trading session of the year lower.

Still, the buying in the bond pits is modest and financial markets remain calm, a sign many still believe an 11th hour deal would surface to tide investors over for the new year.

Better manufacturing data out of China also dilutes worries. Bond market will close early at 2 p.m. EST and trading is light as the world is ringing in the new year.

The 10-year yield earlier was 1.696%, although now it’s closer to 1.72%. The yield is set to close below 2% for a second year following last year’s 1.88%.

Stocks have opened weaker. The Dow is down about 35 points at 12904. The S&P 500 is off 3, and the Nasdaq Comp is down 1.

The 10-year yield, recently at 1.81%, is getting closer to the top of the 1.55%-1.85% range that has dominated since mid-October.

James Newman, head of US government and agency trading at Keefe, Bruyette & Woods, notes that 1.84% is a good support level, but, when it comes to the fiscal cliff, “if a resolution is reached on say Christmas Eve or the week between Christmas and New Year’s, illiquidity could push you up to 1.875-1.90-ish.”

Yet Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets, argues that the Fed is still a big buyer of Treasurys; depending on the fiscal cliff deal, growth will still be below 2%, keeping a cap on yields for the first quarter of 2013, he says.

The 10-year yield has shot up by over 25 basis points this month, though it remains below the 1.88% traded at the end of last year. The yield also hit a record low earlier this year of just under 1.40%.

For more MarketBeat and other streaming markets coverage from The Wall Street Journal, point your mobile browser to wsj.com/marketspulse.

To be or not to be? In an investing sense, at least, Marilyn Cohen, who writes the Smart Bond Investor newsletter and is CEO of Envision Capital Management, says she’d rather be than not be:

Being at generational lows in interest rates leaves two options: Sit on the sidelines in cash and eat away at your principle or invest. I vote to invest whether dividends are taxed at 15% or 39%.

One sector I chose to invest in is MLP’s [master limited partnerships]. These may or may not be touched by a re-jiggered tax code. I chose to invest in intermediate munis and leveraged closed end municipal bond funds and take a quantifiable risk.

I chose to move forward rather than continue listening to the noise around us being repeated. However, I won’t be surprised if our Congressional leaders delay their decisions to leap over the cliff or not. Their own job security is what they really and truly value.

For more MarketBeat and other streaming markets coverage from The Wall Street Journal, point your mobile browser to wsj.com/marketspulse.

The world’s developed economies are stuck somewhere between stagnant growth and recession. Unemployment is high. The U.S. is poised on the edge of a cliff. Europe is poised on the edge of an abyss.

So why aren’t the bears running the markets? Because of the central banks.

“Our house view is best encapsulated by the phrase ‘I’m so bearish, I’m bullish,’ ” Michael Hartnett, Merrill/BofA’s chief investment strategist, wrote in his Thundering Word note. The reason, he said, is that the world’s central banks are flooding the globe with liquidity, growth remains weak, and…well, the world’s central banks are flooding the globe with liquidity.

“Fourteen economies, with a combined equity and bond market cap of $65 trillion, now have zero interest rates.”

It’s a good thing Cassandra lived in ancient Greece and not the modern world. Imagine what today’s headlines would do to her.

Cassandra, as you recall from English 101, was the poor soul from ancient Greek literature blessed with the ability to divine the future but the curse of having nobody believe her. Greek tragedy being Greek tragedy, you can imagine how that went, for Cassandra and her doubters.

We mention her today because sense a bit of the Cassandra out there in a lot of the stories surrounding the Fed and other central banks this week.

The Federal Reserve gave the market what it expected, pledging to replace Operation Twist with a similarly sized bond-buying program. But it also set specific economic targets for determining when it start easing off the gas.

For more MarketBeat and other streaming markets coverage from The Wall Street Journal, point your mobile browser to wsj.com/marketspulse.

Italian bond yields shot up sharply this morning after weekend news that Prime Minister Mario Monti would resign earlier than expected. The catalyst for Mr. Monti’s exit is the loss of support from Silvio Berlusconi’s party.

Mid-morning in London, Italian 10-year yields were at 4.80%, up from 4.53% at Friday’s close. The Italian two-year shot up from 1.96% Friday to trade around 2.28% Monday. Rising yields mean falling prices. Which we’re also seeing on the Italian stock market: The FTSE MIB is down 3.4% this morning.

MarketAxess Holdings is readying an exchange-like system for corporate bonds as large investors increasingly look to trade directly with one other.

The company already operates the largest electronic platform for institutions trading in corporate bonds in the U.S.

Most investors trade corporate bonds with dealers–typically large banks–negotiating terms over the phone.

The new system would allow investors to trade anonymously with each other, without relying on banks to take the other side. It will launch when large customers push for it, but doesn’t have a start date yet, a MarketAxess spokeswoman said.

This week provided several stark examples of just how closely the stock market is hanging on every word out of Washington regarding the fiscal-cliff negotiations. Just today brief remarks from House Speaker John Boehner completely undercut the stock market.

These short-term knee-jerk reactions hide a bigger point, Pension Partners’ chief investment strategist Michael Gayed said this morning on the Markets Hub: No matter the outcome of the fiscal cliff talks, some measure of austerity is coming, and that, he says, will be bullish for stocks.

It’s all tied up in what he calls the “bear paradox.” Essentially the paradox hinges on the comparative yields in bonds and stocks. Given how low bond yields are right now, and the fact they are going to remain low, stocks look attractive by comparison under almost any circumstances, including the government belt-tightening that’ll emerge from the budget debate.

Back in September, Zambia snagged the market’s attention when it managed to issue 10-year bonds at a price only slightly above Spain’s borrowing costs.

Wednesday, Mongolia is in the spotlight, as it sells dollar bonds, tentatively nicknamed Genghis Bonds, with borrowing costs that look set be cheaper than Spain’s. The central Asian state said it wants to sell its 10-year bond at a yield of up to 5.25%. For the five-year tranche, it is aiming at up to 4.25%.

For a comparison, outstanding 10-year bonds from Spain, the fourth-largest economy in the euro area, yield about 5.4%. The country paid a little more than that in a 10-year auction in October.

Those yields for Mongolia make sense, according to frontier-market fans.

“It’s one of the fastest-growing economies in the world, with greatly improved policies, and Mongolia is considerably less likely to default in the next few years than Spain,” said Charles Robertson, chief economist at Renaissance Capital.

About MarketBeat

MarketBeat looks under the hood of Wall Street each day, finding market-moving news, analyzing trends and highlighting noteworthy commentary from the best blogs and research. MarketBeat is updated frequently throughout the day, helping investors stay on top of what’s happening in the markets. Lead writers Paul Vigna and Steven Russolillo spearhead the MarketBeat team, with contributions from other Journal reporters and editors. Have a comment? Write to paul.vigna@wsj.com or steven.russolillo@wsj.com.

A rout in raw materials has helped drive down holdings in a Carlye Group firm’s flagship fund from about $2 billion to less than $50 million. The collapsing commodities market is spreading pain well beyond specialists to some of the heaviest hitters on Wall Street.